Debt: Our Greatest National Security Threat?

Admiral Mike Mullen, Chairman of the Joint Chiefs of Staff, generated quite the buzz with his proclamation last week that, “The most significant threat to our national security is our debt.”

Mullen explained that “ability for our country to resource our military” will be “directly proportional” to the strength of the economy. Further, he noted that projections have the payments on interest on the national debt to reach $600 billion by 2012 — an amount equal to the entire Pentagon budget.

That the comments took off over the weekend demonstrates the power of repetition: Mullen and his boss, Defense Secretary Robert Gates, have been saying exactly the same thing for weeks. Their message is that the Pentagon has to do its part to rein in bloated spending, particularly in prioritizing for longer term needs. Most notably, they’ve been arguing for a need to shift away from expensive contractor support to organic capability.

As I note in my New Atlanticist essay, “The Most Significant Threat to NATO,” the same resource constraints are putting serious strains on the transatlantic relationship. with the United States already footing three-quarters of the defense spending bill, NATO Secretary General Anders Fogh Rasmussen has warned there is a very real danger that the European forces would face “an extreme technology gap” and we could therefore “end up with a situation where the Americans find the Transatlantic relationship less relevant.”

Implicit in all this, however, is that our defense budget and “our national security” are significantly overlapping.

Certainly, the enormous capabilities we can bring to bear makes a traditional military attack on American soil much less likely. But, at the same time, it’s not at all clear that we’ll be significantly less safe if we fail to transform Afghanistan into Sweden over the coming years. Or even if we fail to replace our best-in-the-world fighter airplane with one that’s much better.

Comments

As Paul Kennedy pointed out about 25 years ago (and Sir Halford Mackinder about 70 years earlier) the true measure of a nation’s military power is the size and strength of it’s economy and not the size of it’s battlefleet. So yes to the extent that our public debt is a drag on our economy he’s right in a broad theoretical sense. Over the next ten years we have to bring our debt down to 50-60% of our GDP and he and Gates are signalling that our military expenditure (which are currently half the entire world’s) will have reflect this. And let’s face it, 100 billion out of a 750 billion defense budget is not going to reduce us to the military preparedness level of Mexico.

No. He’s not. People have been complaining about the size of the national debt either here or in England for three hundred years.

The problem, as Brummagem Joe suggests in his comment above, is economic growth and the relationship between growth and spending.

I’m completely in favor of reducing the military budget by $100 billion. Heck, I’m in favor of reducing it a lot more than that. If we decide to spend the $100 or more billion, it won’t reduce the debt by a farthing.

Consequently, I think our greater problem than debt is that we’re going into debt to finance spending on private goods rather than public goods.

I guess I get a kick out of “early warning” by DOD types. They have cautioned in the past about things like oil dependency and global warming. I guess I’m amused about what they choose to notice and how early they choose to notice it. I kind of agree in each case, but it’s like a message from another wavelength.

Obviously none of these, oil, warming, or debt, is going to jump up and bite us in 2010, but it is kind of obvious that we are going to have to deal with each of them, as their time rolls around.

BTW, for how this does directly impact our defense, our defense spending is all debt spending(*), and thus dependent our ability to place debt in financial markets. Should that ability falter, so then would our ability to spend.

We “could” restructure our budget so that everything (defense included) is covered without debt, but … that’s what the guy is saying, we haven’t even started that.

* – The total deficit for fiscal year 2009 was $1.42 trillion, a $960 billion increase from the 2008 deficit. In 2010 DOD spending is projected to be $663.7 billion. We are already debt financing more than the entire DOD budget.

Despite all the alarmist rhetoric, the bond vigilantes have been perfectly happy with the JGB market, presumably because Japan offered something much rarer than mere fiscal rectitude, namely deflation.

When I asked a month ago about Bernanke and deflation, I was really giving voice to a vibe I felt. What if deflation was the direction, and what if Bernanke accepted it?

To answer your question, the appeal for Bernanke would be that (if) mild, Japanese-style, deflation had resolved itself to the least-bad of the attainable outcomes.

I talk of suspicion and vibes because I am clearly not Bernanke, and don’t have his depth of knowledge. But I wonder … how much of a risk does he think he has in QE2? How ugly would a blown up QE2, or a mis-fired helicopter drop really get?

Compared to some things, a stable environment where people keep buying Treasuries might not be so bad.

In other words there isn’t any. Count me sceptical that Bernanke is going to allow the US economy to descend into deflationary spiral which is almost impossible to control in order to appease the bond market.

It is not only the US economic outlook that is subject to “unusual uncertainty”, as Ben Bernanke, Federal Reserve chairman, put it in his ritual testimony to Congress this week. It should be of concern to Mr Bernanke that the same phrase aptly describes markets’ expectations of what the Fed and other policy makers will do next.

I was amused the other day when you claimed I was only concerned with small pictures and ignored the big ones when it’s obvious from much that you write about economics that you have a mind that flies inexorably to the periphery of issues. One big picture I’m quite clear about is that deflation has little or no upsides for the US economy and a mass of downsides that you clearly don’t begin to understand or you wouldn’t talk so blithely about it as an option. I can think of no reason why Bernanke would embrace it and certainly not to appease bond holders/investors who already have a considerable appetite for T bills, whatever bloggers or even oped commentators at the FT may suggest. You’re welcome to believe them if you wish.

Through it, Michael Pento, makes Joe’s argument that Bernanke stands ready to do anything … but then he ends on an odd note:

“Therefore, it is time investors stop fighting phantom deflation fears and prepare their portfolios for the real upcoming battle, which will be with intractable inflation.”

What the heck? Does he know what the word “intractable” means? Thus we return to my question … and wether intractable inflation (or other bad outcomes) might look worse to Ben than Japanese style (mild but persistent) deflation.